Recording, Reporting, and Evaluating a Bad Debt Estimate Using Aging Analysis Brown Cow Dairy uses the aging approach to estimate bad debt expense. The ending balance of each account receivable is aged on the basis of three time periods as follows: (1) not yet due, $14,000; (2) up to 120 days past due, $4,500; and (3) more than 120 days past due, $2,500. Experience has shown that for each age group, the average loss rate on the amount of the receivables at year-end due to uncollectibility is (1) 2 percent, (2) 12 percent, and (3) 30 percent, respectively. At December 31 (end of the current year), the Allowance for Doubtful Accounts balance is $800 (credit) before the end-of-period adjusting entry is made. Data during the current year follow: 2. During December, an Account Receivable (Patty's Bake Shop) of $750 from a prior sale was determined to be uncollectible; therefore, it was written off immediately as a bad debt. 5. On December 31, the appropriate adjusting entry for the year was recorded. Required: 1. Give the required journal entries for the two items listed above. 2. Show how the amounts related to Accounts Receivable and Bad Debt Expense would be reported on the income statement and balance sheet for the current year. Disregard income tax considerations. 3. On the basis of the data available, does the estimate resulting from the aging analysis appear to be reasonable? Explain.
Recording, Reporting, and Evaluating a Bad Debt Estimate Using Aging Analysis Brown Cow Dairy uses the aging approach to estimate bad debt expense. The ending balance of each account receivable is aged on the basis of three time periods as follows: (1) not yet due, $14,000; (2) up to 120 days past due, $4,500; and (3) more than 120 days past due, $2,500. Experience has shown that for each age group, the average loss rate on the amount of the receivables at year-end due to uncollectibility is (1) 2 percent, (2) 12 percent, and (3) 30 percent, respectively. At December 31 (end of the current year), the Allowance for Doubtful Accounts balance is $800 (credit) before the end-of-period adjusting entry is made. Data during the current year follow: 2. During December, an Account Receivable (Patty's Bake Shop) of $750 from a prior sale was determined to be uncollectible; therefore, it was written off immediately as a bad debt. 5. On December 31, the appropriate adjusting entry for the year was recorded. Required: 1. Give the required journal entries for the two items listed above. 2. Show how the amounts related to Accounts Receivable and Bad Debt Expense would be reported on the income statement and balance sheet for the current year. Disregard income tax considerations. 3. On the basis of the data available, does the estimate resulting from the aging analysis appear to be reasonable? Explain.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Concept explainers
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
Question
Transcribed Image Text:E6-23
LO6-2
Recording, Reporting, and Evaluating a Bad Debt Estimate Using Aging Analysis
Brown Cow Dairy uses the aging approach to estimate bad debt expense. The ending balance of each account receivable
is aged on the basis of three time periods as follows: (1) not yet due, $14,000; (2) up to 120 days past due, $4,500; and
(3) more than 120 days past due, $2,500. Experience has shown that for each age group, the average loss rate on the
amount of the receivables at year-end due to uncollectibility is (1) 2 percent, (2) 12 percent, and (3) 30 percent,
respectively. At December 31 (end of the current year), the Allowance for Doubtful Accounts balance is $800 (credit)
before the end-of-period adjusting entry is made.
Data during the current year follow:
Required:
1. Give the required journal entries for the two items listed above.
DATUM
2. Show how the amounts related to Accounts Receivable and Bad Debt Expense would be reported on the income
statement and balance sheet for the current year. Disregard income tax considerations.
7. During December, an Account Receivable (Patty's Bake Shop) of $750 from a prior sale was determined to be
uncollectible; therefore, it was written off immediately as a bad debt.
5. On December 31, the appropriate adjusting entry for the year was recorded.
3. On the basis of the data available, does the estimate resulting from the aging analysis appear to be reasonable?
Explain.
Transaction A
Arghh run
Allowance for doubtful accounts (A+,
XA-)
Accounts receivable (A-)
Debit
750
Credit
750
Expert Solution
Step 1
1) Journal entry
| No | General Journal | Debit | Credit |
| a | Allowance for doubtful accounts | 750 | |
| Account receivable | 750 | ||
| b | Bad debt expense (1570-50) | 1520 | |
| Allowance for doubtful accounts | 1520 |
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